The Coming Derivatives Crisis That Could Destroy The Entire Global Financial System

By Michael Snyder, on October 19th, 2011

Most people have no idea that Wall Street has become a gigantic financial casino. The big Wall Street banks are making tens of billions of dollars a year in the derivatives market, and nobody in the financial community wants the party to end. The word “derivatives” sounds complicated and technical, but understanding them is really not that hard. A derivative is essentially a fancy way of saying that a bet has been made. Originally, these bets were designed to hedge risk, but today the derivatives market has mushroomed into a mountain of speculation unlike anything the world has ever seen before. Estimates of the notional value of the worldwide derivatives market go from $600 trillion all the way up to $1.5 quadrillion. Keep in mind that the GDP of the entire world is only somewhere in the neighborhood of $65 trillion. The danger to the global financial system posed by derivatives is so great that Warren Buffet once called them “financial weapons of mass destruction”. For now, the financial powers that be are trying to keep the casino rolling, but it is inevitable that at some point this entire mess is going to come crashing down. When it does, we are going to be facing a derivatives crisis that really could destroy the entire global financial system.

Most people don’t talk much about derivatives because they simply do not understand them.

Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates.

The key word there is “speculation”. Today the folks down on Wall Street are speculating on just about anything that you can imagine.

A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

A derivative has no underlying value of its own. A derivative is essentially a side bet. Usually these side bets are highly leveraged.

At this point, making side bets has totally gotten out of control in the financial world. Side bets are being made on just about anything you can possibly imagine, and the major Wall Street banks are making a ton of money from it. This system is almost entirely unregulated and it is totally dominated by the big international banks.

Over the past couple of decades, the derivatives market has multiplied in size. Everything is going to be fine as long as the system stays in balance. But once it gets out of balance we could witness a string of financial crashes that no government on earth will be able to fix.

The amount of money that we are talking about is absolutely staggering. Graham Summers of Phoenix Capital Research estimates that the notional value of the global derivatives market is $1.4 quadrillion, and in an article for Seeking Alpha he tried to put that number into perspective….

If you add up the value of every stock on the planet, the entire market capitalization would be about $36 trillion. If you do the same process for bonds, you’d get a market capitalization of roughly $72 trillion.

The notional value of the derivative market is roughly $1.4 QUADRILLION.

I realize that number sounds like something out of Looney tunes, so I’ll try to put it into perspective.

$1.4 Quadrillion is roughly:

-40 TIMES THE WORLD’S STOCK MARKET.

-10 TIMES the value of EVERY STOCK & EVERY BOND ON THE PLANET.

-23 TIMES WORLD GDP.

It is hard to fathom how much money a quadrillion is.

If you started counting right now at one dollar per second, it would take 32 million years to count to one quadrillion dollars.

Yes, the boys and girls down on Wall Street have gotten completely and totally out of control.

In an excellent article that he did on derivatives, Webster Tarpley described the pivotal role that derivatives now play in the global financial system….

Far from being some arcane or marginal activity, financial derivatives have come to represent the principal business of the financier oligarchy in Wall Street, the City of London, Frankfurt, and other money centers. A concerted effort has been made by politicians and the news media to hide and camouflage the central role played by derivative speculation in the economic disasters of recent years. Journalists and public relations types have done everything possible to avoid even mentioning derivatives, coining phrases like “toxic assets,” “exotic instruments,” and – most notably – “troubled assets,” as in Troubled Assets Relief Program or TARP, aka the monstrous $800 billion bailout of Wall Street speculators which was enacted in October 2008 with the support of Bush, Henry Paulson, John McCain, Sarah Palin, and the Obama Democrats.

Most people do not realize this, but derivatives were at the center of the financial crisis of 2008.

They will almost certainly be at the center of the next financial crisis as well.

For many, alarm bells went off the other day when it was revealed that Bank of America has moved a big chunk of derivatives from its failing Merrill Lynch investment banking unit to its depository arm.

So what does that mean?

An article posted on The Daily Bail the other day explained that it means that U.S. taxpayers could end up holding the bag….

This means that the investment bank’s European derivatives exposure is now backstopped by U.S. taxpayers. Bank of America didn’t get regulatory approval to do this, they just did it at the request of frightened counterparties. Now the Fed and the FDIC are fighting as to whether this was sound. The Fed wants to “give relief” to the bank holding company, which is under heavy pressure.

This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input.

So did you hear about this on the news?

Probably not.

Today, the notional value of all the derivatives held by Bank of America comes to approximately $75 trillion.

JPMorgan Chase is holding derivatives with a notional value of about $79 trillion.

It is hard to even conceive of such figures.

Right now, the banks with the most exposure to derivatives are JPMorgan Chase, Bank of America, Goldman Sachs, Citigroup, Wells Fargo and HSBC Bank USA.

The biggest U.S. banks continue to grow and they continue to get even more power.

Back in 2002, the top 10 U.S. banks controlled 55 percent of all U.S. banking assets. Today, the top 10 U.S. banks control 77 percent of all U.S. banking assets.

These banks have gotten so big and so powerful that if they collapsed our entire financial system would implode.

You would have thought that we would have learned our lesson back in 2008 and would have done something about this, but instead we have allowed the “too big to bail” banks to become bigger than ever.

And they pretty much do whatever they want.

A while back, the New York Times published an article entitled “A Secretive Banking Elite Rules Trading in Derivatives“. That article exposed the steel-fisted control that the “too big to fail” banks exert over the trading of derivatives. Just consider the following excerpt from the article….

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Sadly, these five banks keep pouring money into the campaigns of politicians that supported the bailouts in 2008 and that they know will bail them out again when the next financial crisis strikes.

Those that defend the wild derivatives trading that is going on today claim that Wall Street has accounted for all of the risks and they assume that the issuing banks will always be able to cover all of the derivative contracts that they write.

But that is a faulty assumption. Just look at AIG back in 2008. When the housing market collapsed AIG was on the wrong end of a massive number of derivative contracts and it would have gone “bust” without gigantic bailouts from the federal government. If the bailouts of AIG had not happened, Goldman Sachs and a whole lot of other people would have been left standing there with a whole bunch of worthless paper.

It is inevitable that the same thing is going to happen again. Except next time it may be on a much grander scale.

When “the house” goes “bust”, everybody loses. The governments of the world could step in and try to bail everyone out, but the reality is that when the derivatives market comes totally crashing down there won’t be any government on earth with enough money to put it back together again.

A horrible derivatives crisis is coming.

It is only a matter of time.

Stay alert for any mention of the word “derivatives” or the term “derivatives crisis” in the news. When the derivatives crisis arrives, things will start falling apart very rapidly.

I heard that they were even placing bets on bets! Wouldn’t surprise me.

It just amazes me that this crap has been able to go on this long. There will be no way to undo it and no one will be safe when the cards come down.

Paul

Yes. I have an investment advisory and in it it recommended me to invest in some kind of bet that pays 2×1 if you win. Is like, betting that somethings will come down and if you win, you get twice the money you put into. Just crazy…

expatriot

Neo-cons lick banker ************. Fascism sucks.

Steve

Didn’t someone a while back say derivative contracts should be tightly regulated and forced to be transparent on a dedicated public exchange….probably too late for that to work now.

From: http://goldenladyfun.blogspot.com – Well I have some personal knowledge that many municipalities, governments and universities are heavily vested in the derivative markets. They especially were attracted to the Credit Default Swaps. (Please do not ask me for details since I am not at liberty to say more.)

I might also say that they were well aware of the risks involved but were trying achieve incredible returns in the short term to a) keep their clients happy, b) keep their jobs and c) hide winnings from the public.

Start a gold savings plan now.

Great article, Michael.

mark

Did not Greenspan say that the United States could always print more dollars. If I hand you a twenty dollar bill and you can trade it for an item every thing is great. When it takes two or three to trade for the same item things aren’t so great. I always have thought that I should pay my bills. This is part of my value system. This huge game that is a ripoff by Bank of America and others are not my bills. I used to think our National debt was part of my bills. Since the bailouts of banks and Wall Street the debt has grown so much that I am starting to think that these are not my bills. I would prepare for a very different future that will be coming to a city near you.

The Federal Reserve is a Private Bank. Our Political leaders fully understand this and have failed to impose the restrictions on this bank necessary to protect the Tax Payers. Our govt is corrupt and the entire Banking system is corrupt. The end of this game is going to be ugly.

BHO

How can the Average Joe get in on the fun?

Jase

There is an easy way to end this. Just like the first time around CDO’s and CDS’s should have been properly valued and those institutions that were bailed out and the people that were allowed to collect on CDS’s should have been wiped out vs., being rewarded.

What people don’t understand is not only is wall street a casino, but it is like one of us being in Vegas, having a multimillion line of credit and every time we lose our debts are wiped clean and we’re given more credit. All that is different is instead of millions, these financial institutions are messing around with trillions.

Sure the amount of derivatives is mind boggling, but the reality is all that ‘money,’ is vaporware. It never existed. Just because the banks decided to take in billions in fees in order to sell trillions in bull crap swaps and derivatives doesn’t mean the rest of us have to pay for those losing bets.

Only deposits from people and corporations should be insured. Actual solid assets, not some contract or BS financial instrument that is worth trillions.

Heck, the actual real debt and the real valuation of CDO’s is bad enough and a problem we can’t work through.

You allow the banks to steal even more money covering their bad bets to the tune of unimaginable trillions put on the shoulders of common American’s and global citizens and it really is the end of society.

I raved over and over that we should have let GM, the other big banks, and the system itself if necessary fail back in 2008. All we did was allow more time for these same pieces of crap to make the situation even more impossible to manage or correct.

r.bitting

Sure things are bad right now but after the election in 2012, we will be back on track…. or is it ” the world will think we’re on crack “…OR, maybe it’s the world that says ” now we should attack ” … I can’t remember, but no matter, Oh, wait, now I remember, it’s ” After 2012 we will all be in serious lack. But don’t worry, the politicians will have your back…. or is it ” they’ll stab you in the……. ( Trust in God, and let the fools trust in man ).

GoatLady

I like that, thanks for the laugh!

Hunter

It’s all going to be inflated away just like you inflate away debt. I don’t know if we will see the words “derivative crisis” in the news. Most people won’t know what happened. But you are spot on with you analysis, great article!

The Golden Child

this needs to end alread so we can ge on with rebuilding america. keeping it up is a waste of time. so i guess this is the year when it goes down

These figues are staggering>>>>> all they have to do is keep hitting the ;;DELETE;; button on all those zero’s 00000000 its all electroniclly made up money fron thin air, from the compcontrollers at the Federal Reserve and World Bank,,

Texar

Shut down these banks and abolish the Fed. If you owe money to one of these banks, you get your asset free and clear and/or your credit card debt just disappears. Have Congress issue DEBT free money and let’s start over. It is IMMORAL to have the taxpayer on the hook for this dispicable greed. It’s as immoral as slavery was… and it’s tearing our country apart.

Marco

I guess you really can say that the overall economic crisis is caused by one thing – greed. And to think that those people with all that money are _still_ not happy. I pity them.

Every time I read these articles, I shake my head. At the same time though, I think of Philippians 4:7. Then I try to do what I can to inform and help others. Keep up the great work!

007

The derivative bets on European defaults have to be massive. You can bet they are made by or written by our banks. It could take a 100 trillion to cover all these bets.

These wicked speculative bets should never have been legal. Every politician that passively allowed these to continue should go to jail. This is utter corruption.

Colin

A study was released this autumn that demonstrated that traders are psychopathic and are willing to take more risks than ‘normal’ psychopaths. I think this is very important when we consider what is happening, and it’s very scary for us. If we ever wanted to experience the horror of being held captive by a psychopath, we don’t have far to go for we live and struggle to survive in their world.

Assuming a dollar bill has a thickness of 0.0043 inches and the sun is 93 million miles from earth a stack of 1.5 quadrillion one dollar bills would extend into space 8.8 million miles farther than the distance from Wall st.to the sun.

kind of prophetic, looking back – although one of the cheesier episodes..

Southern Trumpet

French Revolution 2.0 on the way banking *****************

Paul

There is only one way out: put your money in longlasting goods. No more perishable goods except food, medicines and heating.
Quit your phone contracts and Internet and all other monthly payment obligations. Repay mortgages, do not take any credit, do not sign obligations you wouldn’t be able to pay right now out of your savings.
Don’t give other people power over you.

Or

Just live off other people’s money. Make as much debts as you can and live life to the fullest.

mark c

What is the first thing you do, when you find yourself in a hole?………….I’m waiting……………YOU STOP DIGGING!

Paul

No, you dig further and then call the news and collect donations from the poor for your rescue.

Paul

The trick is now to sell those derivatives and buy gold instead. As the derivatives will lose money anyway and there is not enough gold to buy for all those derivatives, you can accept any price for the sale of the derivatives and be willing to pay any price for the gold.

And when you have all the gold of the world you are the king of the world, until someone kills you.

mark c

now is a good tome to buy gold and silver,January would have been a better time. look at Germany from 1922-1923 gold jumped from
1600 to 15000 in 3 days. its lke a Green bay defensive lineman hitting you.I hope
we don’t go down that hard.

Paul

What will you do with the gold and silver? Eat it?

Now is a good time to buy a pullover and woollen blanket.

mark mcbee

We will reach 100% debt to GDP ratio on Halloween 2011. It’s scary and ironic. If you count unfunded liabilities like Social Security and Medicare we already reached at least 380% debt to GDP ratio.

Bone Idle

If Europe falls over with a cascading effect to the R.O.W. The derivative problem will be moot.
The six hundred odd Trillion can be swept under the carpet and written off. Those bankers who profiteered from the derivative boom will get away with their heads…… and mansions….. and etc, etc, etc.

Given time a whole new derivatives boom can be reassembled.

patriot alice

A derivative is nothing but a false security, promising to insure a bet it won’t…It’s like an Insurance Company selling policies, with no money for the payouts…

William

A previous head of the CFTC, a woman named Brooksley Born, tried to get some sort of control and transparency on these unregulated derivatives. She was crushed by Greenspan, Rubin and Summers. What do these three have in common???

Emily from SC

When the derivitives time bomb explodes, does that meant that we will have instant hyperinflation as money is massively created to cover these bets going bad or will we have instant hyper-deflation as all the money in the world is sucked into this black hole of bets going bad?

OR … will we swing rapidly from one to the other and all puke after that nauseating and insane roller coaster?!!

I’m fairly alarmed here.

mark c

I am sick of the new sugar coated words that are substituted these days. Its called Runaway Inflation and you will know the meaning of
“Brother can you spare a dime”

Syrin

FIVE, count them, FIVE banks have exposure to 96% of the $250 trillion derivatives market. Furthermore, they have HEAVY exposure to European banks so when (not if) Greece defaults, then Italy follows, then Spain, then France, our banks too will be caught in the domino effect. It will truly be global financial collapse.

What to do? Have as little exposure to the financial market meaning put your savings account in a small local bank, get physical gold and silver, guns, food, water and a plan.

Let them implode. There was life on this planet long before money was invented and programs such as The Venus Project will ensure that we all have a much better way of life after money fails.

Rowell

When I read about Bank of America, derivatives and the FDIC yesterday, I understood completely just how broken the system is, and how totally beyond fixing it is. The banks can do what they want. Laws don’t matter. Regulation doesn’t matter. They make the rules. They have all the power. They’re going to bleed us dry until there is absolutely nothing left.

So use that worthless money now to buy the things you’ll need after the dollar is just another piece of paper. Stock up on food, and the necesities.

REED RICHARDS

Now to the nuts and bolts of the matter. This article is spot on in many respects. I like the way you break down what derivatives are and how they work. I also like the fact that you highlight the role that the megabanks are playing in this financial scandal and destruction.

The only points of contention I have with this article are: 1. You point out that one of the groups of supporters for the bailouts are Obama Democrats. True, but to clarify and be more accurate it would have been wiser to say that Obama and the Democrats in Congress as then U.S. Senator Barack Obama (D-ILL) also voted for the first “official bailout” known as TARP.

2. Instead of the below santized language: “This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input.” how about the words “Class Warfare of rich banking and political elites”?

IN A NUTSHELL:

Class warfare started long before Occupy Wall Street came onto the scene. In fact class warfare started when the U.S. Constitution was first written. Remember, only white males with property could vote or hold office, women could not vote and were relegated to the kitchen and the bedroom, blacks were slaves and the Native Americans were nearly wiped out. Therefore, the notion when those “called leftists” want change to a system that demands fairness are engaging in class warfare is simply ridiculous. Rich monetary elites trying to hide their crimes and consolidate their wealth say this to squash challenges to their illigitimate and undemocratic rule based on theft of national, state, and local treasuries and murder. Again, this gets back to point A, and that is unless and until people disavow themselves of both wings of the war party, they will continue to get economy crashing policies based largely on financial ponzi schemes and outright theft.

Derivatives are to todays financial system what “margin” was to Wall Street in 1929…x1000

callmecordelia1

I think I’m beginning to understand the massive problem we have here, thanks mostly to Michael and his blog. What I’m wondering is how it will play out for individuals. Let’s just say, (hypothetically :D), that I have my mortgage with Bank of America, and all of my personal and business accounts with JP Morgan Chase. If they go down, what happens? I assume that I lose all of the money in my accounts. What happens to the mortgages? What happens to our homes? What do we do to protect ourselves? I’ve heard many people say to get our money out of the big banks. So let’s say I move all of my business accounts to a local credit union. Will that help? Does it matter? Or is it a house of cards that will come down on everyone, no matter the size of the bank/credit union? Does anyone have any thoughts on this? I know some will say to get all of our assets out of banks, but that’s not an option for me. I’m an internet retailer, and all of my transactions are done online through credit cards and get automatically transferred to my bank. What do I do?

Michael

I wouldn’t panic. Your bank account is going to be insured by the federal government.

What I would do is to start stockpiling the things you will need in the months and years to come. The more self-sufficient we all become, the better.

What kind of Internet retailing do you do?

Michael

callmecordelia1

Thank you Michael! I guess I just figured that “insured by the federal government” wouldn’t mean a whole lot if it all came crashing down. It seems like eventually there will be no more blood to get out of the turnip. As for my internet business– I sell cookie cutters. 😀 Kind of random, but we actually do really well with it. KarensCookies.net.

Thanks so much Michael! I appreciate you taking the time to look at it. 🙂 It has proven to be pretty recession-proof so far (knock on wood). In fact our sales really went up in October 2008, which is an odd study in economics. It’s a fun business to be in. It keeps me smiling through tough times– which is maybe why sales go up in tough times. It makes others smile, too.

mark c

The FDLC is bankrupted right now!

denny

1. Bring your family closer. 2. Get to know your neighbors better. 3. Begin to explore the possibilities and power of trust, communication and co-operation (virtuous yet lost art forms) We are going to need to talk with each other. 4. Turn off your t.v. 5. Abandon the psychology of consumerism – more, better, success, respect through accumulation, etc. These traits are merely distractions which prevent us from affecting meaningful change. 6. Try to avoid buying corporate if and when possible. The only thing they really pay attention to is the bottom line. Hit them there and we reverse the table – we have the power. 7. Together we are powerful, very powerful. It hasn’t been a left/right struggle for a long, long time. It’s become a rich vs. the rest of us and at this point they’re winning. Remember, it is not only about economics. These recent developments concern our souls and our very survival. We will have to learn to rely upon and trust each other. That part is essential and very important. Good luck as it will be a very long path requiring much diligent work to recover our emotional, spiritual, psychological and economic health.

Electrikoolaid

Only knaves find profit in knavery.

knightowl77

I’ve have agreed that this blatant gambling and not investing…That they are allowed to gamble, lose and then get bailed out with taxpayer money is beyond understanding.
This kind of abuse does need to be eliminated, and people marched off to jail for using taxpayer funds to backstop this madness. Pols of both parties should be ashamed as they are frogmarched out of their offices and into prison for allowing this…

justamom

Thanks for this important reminder, Michael. Derivatives really are the “wild card” in the whole global economical equation; simply no one knows what will happen when it all comes crashing down.

jerry O

The joke is that wall street big shots make statements, as if they’re trying to help fix the problem.

What’s going to take place in the economy in 2012 can bankrupt 95% of the population… (Fact: This has already happened in 30 distinctive countries during the last 100 years, and TWICE in the US!) Learn how to not only survive the economic collapse but thrive from it:

When it comes to derivatives, its all about counter party risk. The notional value keeps rising exponentially because the parties involved are trying to prevent an unraveling due to counter party risk, where one institution can’t make its obligations and starts a chain reaction.

The notional value number is so high that its basically meaningless at this point. The real concern is how much of that value is unhedged and therefore exposed to interest rate risk. Its pretty much impossible to tell but I’m sure we’ll have a much better idea once we see interest rates begin to rise.

Even if the exposure is only one half of one percent, that’s still $7 trillion! The one lesson that will come out of this whole mess when it finally does unravel is that no matter how hard you try, you can’t cover any and all risks at the same time. This will be the closing line in the upcoming PBS Frontline documentary…

Steve

I am only trying to hold things with value, land, precious metals, food, ammo, seeds and other items. I started doing this over a year ago and my basement is getting full. None of my friends believe me, they think I am crazy.. I don’t care.. I will make it and I will help some of them, because I know I can’t make it alone when the SHTF… My next move is to get off the east coast

sharonsj

The derivatives problem has been going on for decades. More than 20 years ago, whole cities, pension systems, and school budgets went bankrupt because they were conned into investing in derivatives. They were told these things were safe, but derivatives are really nothing but making bets on whether prices go up or down.

Has any regulation been passed to stop this? Of course not. Not when Congress is bought off and the FED and the SEC do whatever they want (which is to keep the old boy network greased). This country has been screwed over by the really rich, and if we had a media that actually told us the truth, then you would have seen Occupy Wall Street a lot sooner.

Troy Mclure

As long as you can gamble with the US citizen picking up any losses, they will continue to gamble. You only way to correct the problem is to let capitalism run its course and let them fail.

sanityjones

The global financial system NEEDS to be destroyed. Too bad there won’t be enough corpses to throw in the street to cover it all up……..or will there?

The Housing Crisis of 2008 and the current derivatives crisis wouldn’t be possible, if our leaders hadn’t repealed the Glass-Steagall Act, which was passed after the Great Depression to prevent investment companies from gambling with the banks savings.

In Nov. 1999, provisions that prohibit a bank holding company from owning other financial companies were repealed by the Gramm–Leach–Bliley Act, named after its co-sponsors Phil Gramm (R, Texas), Rep. Jim Leach (R, Iowa), and Rep. Thomas J. Bliley, Jr. (R, Virginia).

The Gramm–Leach–Bliley Act was signed into law by President Clinton.

The repeal of provisions of the Glass–Steagall Act of 1933 by the Gramm–Leach–Bliley Act effectively removed the separation that previously existed between investment banking which issued securities and commercial banks which accepted deposits.

So we should condemn Glass-Stegall’s repeal for reestablishing conflict of interest within the financial industry and fostering “too big to fail” institutions that led to the housing market collapse and its associated financial crisis.

So many times we want to just blame Bush and/or Obama, but Clinton played a huge role in our current crisis too.

William

Your post is quite accurate. And, yes, this is the precise reason for WHY we are in this derivatives nightmare. A large part of this horror are the CDS……Credit Default Swaps….so named because they are actually insurance. Calling them CDS prevented the state insurance commissioners from having any authority over them. Gramm is at the center of this stupidity.

007

These politicians acted like total whores and sold out the country for their own benefit and political bribes. How did they even think up this evil law? An even better question, why have they not already repealed this law since it almost destroyed the country? They are so in the banks pockets. Every incumbent that has stood by and passively allowed this law to continue should be thrown out of office.

Zedge Hero

Exactly, now dig a little deeper and you will find that like the article mentions, it goes back to the Big “5”. Who owns stock in the Federal Reserve that they are not allowed to sell? The big 5? And please forget about the TARP bailout, it is pennies on the dollar compared to the 16 trillion dollar bailout that was given to banksters around the world between 2008-2010 explained here in this video.

The presstitutes can only cover our eyes for so long. People are realizing that the best way to rob people is to own a bank. More people are realizing that it’s the United Banking Cartel versus us, not me versus you, for we are the many, and they are the few.

Interesting take on it. I rather think that it isn’t the Glass-Stegal act, but the “too big to fail”.
If banks knew that there was no “safety net”, via the FED window, then they wouldn’t take these chances in the first place. This is where the answer is. Make the FED do what it is supposed to be doing. Its job is only to keep our currency stable(they haven’t done that since the early seventies at best, more likely since the 1930’s.

007

Since the creation of the Fed in 1913 the dollar has continued losing it’s purchasing power. A dollar today has so depreciated thanks to the Fed it equals the value of .04 (four cents) in 1913. The Fed has done nothing but destroy the value of our currency. It is evil and should be done away with along with our fractional reserve banking syste.

“the end is always predestined by the means”

mondobeyondo

The repeal of the Glass-Steagall Act removed the last “check” that we had in keeping the big banks at bay. It should have never been done. But, in the interest of “free trade”, it was. And now, the banks are running rampant, even with their massive taxpayer funded payouts.

mondobeyondo

BAILOUTS. Bailouts. Hate it when I screw up a post.

DanD

When the derivatives market finally does implode, it won’t really matter, because the multiple-pandemics, mass die-off of humanity will have already been initiated.

Derivative-destruction … that’s the tip-off.

DanD

Maria

Thank you, Michael, for doing such a great job of exposing the truth of the world’s predicament. It has helped me and my family understand the situation. That understanding has given us more time to prepare. What a Godsend!

Please, everyone, take this time we have left to prepare. Come what may, be as ready as you can. Organize with your extended family and friends. And don’t forget the most important preparation of all….your relationship with Jesus.

God bless you all.

Michael

Well said Maria. I very much appreciate the kind words and I always appreciate the comments that you post.

“Right now, the banks with the most exposure to derivatives are JPMorgan Chase, Bank of America, Goldman Sachs, Citigroup, Wells Fargo and HSBC Bank USA.”

The same international bankers who own the Federal Reserve, also own Goldman Sachs, Bank Of America, HSBC, JP Morgan Chase, Citigroup and Wells Fargo.

These same banks received part of an unauthorized 16 Trillion Dollar bailout from the Fed.

Wake up people. It’s all the same elite bankers, who create market bubbles and economic crisis, to funnel our hard-earned money into their pockets, and leave us enslaved in debt.

mark c

Bush gave TARP money to the banks THAT THEY ALL PAID BACK WITH INTEREST.to compare that to the present administration is laughable.

jackro

Well, they kinda paid it back. Then they took out loans from the discount window to cover it, while the FED used the “paid back money’ to purchase common stock. Look deeper into this one and your eyes will bleed.

This is the very ideal of rob Peter to pay Paul. Only we are Peter and the bank is Paul.

The system was rigged when the Glass-Steagall Act was repealed by Clinton and Rep. Leaders.

This led to the housing crisis of 2008, but instead of our leaders taking action to prevent it from happening again…

They just keep letting the corrupt hedge fund managers run wild in placing gambling bets with our money.

There’s no difference between Republic and Democratic Presidents… they all promote the same agenda for the elite bankers who own them.

Every fiat currency eventually returns to its true value….ZERO!

Don’t play their game. Take your money out of their banks (Bank Of America, HSBC, JP Morgan Chase, Citigroup and Wells Fargo)

Get your money out of IRA’s and 401k’s before they are worth nothing as the Dollar fails.

boeing engineer

Spare me the crocodile tears. This is merely a distraction. When you lose money in Las Vegas, the government doesn’t bail you out. Why should they bail out banks engaged in speculation? Crony capitalism. Pres Obozo and the Dems in Congress receive far more campaign contributions than GOP members, and they needed to grease the pockets of their friends. Most Republicans were in favor of letting the chips fall where they may, even if it resulted in some personal discomfort.

Eyeball Kid

We’re approaching a new paradigm, my friend. It’s not Democrats vs. Republicans anymore. It’s the 99% vs the 1%. It’s corporate and bank domination of the economy vs the workers who are in a downward slide with their purchasing power and disposable incomes. And the gap is growing daily. Republicans are no different than corporate Democrats. They’re all either supporting the 1% or they’re in the 1% bracket.

That’s the basic message of the OWS movement.

Barn Cat

The Federal Reserve can print as much money as necessary to stabilize the world’s banking system.
Need $1 trillion? $20 trillion? $500 trillion? No problem. It’s even easier to create it electronically than it is to print it. Of course, it can reach the point where the dollar becomes instantly worthless but no system is perfect.

J.C.Vaughan

The Derivatives Crisis! Maybe of 2012! Consider this the revenge of God for what you did to Iran back in 1953 (and to others since). Rest assured that in choosing Crony Capitalism you followed your own filthy evil nature (just like the Fake-Christian “Family”) and you will deserve everything you get. “You Will Die By Your Own Evil Creation”.

Joesph

Unles Mother Teresa is running these banks, the CEO’s, traders, etc.. will ALWAYS do the wrong thing for the country and will ALWAYS do the right thing to line their own pockets.

As much as I hate to admit it, there needs to be hugh regulatiosn on banks because again, selfishness, greed and power always prevails without restraints.

jackro

The answer is a simple one. Failure. Get rid of the FDIC, and make the bank CEO, COO, and President responsible out of their OWN pocket for bad business practices. No more FDIC, no more bailouts, and no more “free money” from the discount window at the FED.

This derivative movement by BofA to have the American Tax payers cover their bets should be considered an act of terror.

The “Too Big To Fails” are plotting to take America down just to protect their own personal needs.

How can we as American citizens stop this move by the banks?

DownWithLibConDebateDistraction

How long can a system based on gambling trillions of dollars sustain? Throw the dice. That is your answer. And, oh yeah… let’s end the nonsensical distraction tactic of the conservative vs. liberal never ending debate. It is nonsense. It is pointless. It is a distraction. While we endlessly debate a small group of of very wealthy, very clever, very powerful people cart away our wealth. How long will we continue to occupy ourselves with nonsense?

Tripseven

I’m not sharp enought to figure out how to make money placing bets on bets, so I just keep going to the office.
I’m also not clairvoyant enough to see how all this will affect the U.S. economy let alone the world.
I’ve worked hard. I paid off my house this year. I paid off my car and my wifes car too.
I have saved some money, and tried to prepare for disasters like hurricanes, and floods. (both are possible here)

I doubt I’m prepared well enough for an economic collapse, but how can someone be prepasred for something of this magnitude?

If you haven’t, trust in Jesus Christ.

777

jackro

How to prepare
1. have gold and silver instead of all cash(10% is plenty of gold and silver)
2. Have at least a years worth of food stored up, and the ability to make a sustainable garden for the years after.
3. Have at least 2 weeks of water, and the ability to purify it
4. Have a means of protection
5. Have a “safe house” a location that is away from masses that you can flee to if things get out of control.

James

When I was 6, hundreds of dollars was a lot of money.

When I was 14 and had had a job for a while, thousand of dollars was a lot of money, but not hundreds anymore.

After a bit of life experience at 18, millions of dollars became a lot of money, but thousands weren’t anymore.

When I started studying politics in college, billions became a lot of money, but millions weren’t anymore.

When I graduated, trillions of dollars was a lot of money, but billions doesn’t seem like much.

Now I read this article and quadrillions becomes a lot of money and I wonder if they’ll let me put a pillow on the table before they bend me over it.

I wonder if Richard Branson will try to colonize Mars anytime soon. Because if so, I’m in.

Mal R.

“I wonder if they’ll let me put a pillow on the table before they bend me over it.”

LOL! Funny stuff. prolly not.

BenjiK

Our biggest threat is the big banks and the world’s leading nations have morphed into a single, very dangerous entity. A total financial collapse is the only remedy to “reset” these atrocities. However, when the big banks fail, the governments will follow. I guess that leads me to my concern of the OWS protests. How can they be against banks but for government? Banks & government have been manipulated by design in which they feed off of each other. Many people are concerned/fearful of a “New World Order”, but as nations still claim their independent sovereignty, the world’s intertwined, global financial system has already made that claim unsubstantiated. The NWO is here, now, conveniently disguised as the “global financial market”………

Wall Street Is Going To Collapse And This Will Be All It Takes To Lite The Powder Keg This Country Is Sitting On. The Politicans In This Country Continue To Turn A Deaf Ear To The Fact A Lot Of People Have Told Them Enough Is Enough,
It Seems For People To Get Their Attention, All Hell Is Going To Have To Break Out And The Consequences Will Have To Be Dire,Because All They Are Going To Do With The Protesters Is Sneer At Them And Laugh,And When IT Happens It Surely Will Not Be There Fault.Remember The Riots In Los Angles After The Rodney King Beating,Only This Will Be Ten Times Uglier.

where is the law?..where are the people to say stop.why are they getting away with this?im from fiji and my mind boggles at the figures of money that the elite hog.this is financial terrorism.

warbaby

PBS Frontline did a program titled “The Warning”. If you can view this you will learn what this country is in for regarding derivatives.The woman who exposed or tried to was run right into the ground to cover it up. We are indeed in trouble.

-40 TIMES THE WORLD’S STOCK MARKET.
-10 TIMES the value of EVERY STOCK & EVERY BOND ON THE PLANET.
-23 TIMES WORLD GDP.

If it were in $1 bills, it would cover the WORLD with a layer of paper 1.24 inches.

THAT is $1.4Q in practical terms.

How much money you have in your pocket???

Capitalist Eric

Excuse me… 1.24″ thick.

mile

just what the ptb want.to collapse fdic so as to loot all depositors one trillion leveraged 100 to one….is 100 trillion…. to bad with 100 trillion entering the game, 1 trillion is worth only 10 billion…..? and your saving account of 20,000 is only worth 200 bucks. gotta wonder the kickback politiciams got for this..????

Antonio Gonzalez

It’s not economy, it’s gambling.

me

It’s NOT gambling.
It’s a SURE THING – for them.

mondobeyondo

If only the odds in Las Vegas were as good.

When I play blackjack or craps there, I usually lose. The big boys “crap” all over us little people, and they win.

Anyway, obviously the word of the month has to be “Derivatives” I hope I don’t see that word in the lamestream media until after the winter, otherwise it’ll be a very hard season on all of us.

Blessings to you brother, hope all is well.

David M

Let’s call a spade a spade. It’s the same with quantitative easing = money printing.

Derivatives = gambling.

Just fancy terminology.

David M

Russ

Yep. And when that happens, it won’t matter which party you are loyal to, all will be swept away in the tsunami that follows as the political factions are tied to the banks & vice versa.

yourmommyismydaddy

economic ***********, when the *********** storm arrives you will be the first one on the chopping block..and no, I’m not talking about losing your job but more like your head. The new world order has no space for pea brained conspiracy nuts.

sam

Derivatives are basically a Ponzi scheme.

007

It’s like selling earthquake insurance on a fault line. They gladly take the money for the premiums and spend it. However, in the event of a earthquake there is absolutely no way they could pay the actual claims. They are counting on being to big to fail and the government bailing them out again.

Wow, I wonder how the Dodd-Frank bill overlooked doing anything to regulate these dangerous financial instruments. What a bunch of corrupt politicians. The democrats and some republican politicians passed this act. Anyone who voted for this act should be voted out of office. They really sold us all out for the benefit of the big banks.

mondobeyondo

Bingo!

And just for that – you deserve a Social Security check for $000.00. The Treasury Secretary personally signed it!!

bobbobbobbob

amerika used to make things now it makes things up. the rebuplicanterrorists have consistently supported selling bets on bets(financial make believe jobs) and support the outsourcing the good union jobs(manufacutring jobs) in the name of amerika and kapatalism and you buy these lies!! why do these hedge fund traders pay only 15% tax rate while u pay much more?? the rebuplicanterrorists consider you pesants and you are Google walmart pesant insurance!!!!
i dare uuuuuuu

SMASH THE CONTROL MACHINE

CULT OF PERSONALITYhttp://www.youtube.com/watch?v=7xxgRUyzgs0 I EXPLOIT YOU STILL YOU LOVE ME I TELL YOU ONE PLUS ONE MAKES THREE!!!!

Forrest Chambers

I normally agree with this website, but in this case, I find it impossible to believe that derivatives can and will bring down the banking system. The main reason is that when someone loses money, someone else makes money, it’s that simple. No, this absolutely can not happen.

The “house” should never need to pay, because derivatives are always one party petting against another party, and the broker in the middle just takes a fee. This is not the problem at all, but I’ll explain the real problem.

Party A makes a win, so they demand their money, Party B makes a loss and the loss is huge so they demand a government bailout, else they will collapse and take the system down with them. The government guys have no market experience but they get terrified that something bad might happen to their pensions so they hand over the bailout. In order to pay the bailout they sell government bonds which get bought up by Party A.

Now future taxpayers are in debt to Party A for a long, long time.

The fundamental problem is that this is a standover operation… banks threaten the government with financial instability and government is pissweak (and typically corrupt) so they buckle easily. Once the banks learn that this process works they keep going: rinse and repeat.

As more and more people understand that the system is rigged and the rule of law has broken down, they stop participating constructively and focus on their own personal survival. This accelerates towards systemic collapse. These people would use the democratic system to restore the rule of law if that were an option, but both parties are more interested in supporting big business than anything else. As it gets to the point where some sort of hardship becomes inevitable, each tribal group tries to blame the other side for causing the problem.

Jim Shores

Tell those 2,500 elite mass murdering thieves to stick those dirivates up their arse. We don’t owe and we sure as Hell won’t pay.

Gary2

Gotta love the capitalist system and deregulation. Not workin out too well is it?

From the Christian Science Monitor:

The standard of living for Americans has fallen longer and more steeply over the past three years than at any time since the US government began recording it five decades ago.

Bottom line: The average individual now has $1,315 less in disposable income than he or she did three years ago at the onset of the Great Recession – even though the recession ended, technically speaking, in mid-2009. […]

“The pace of change has been incredibly rapid and incredibly tough on the less educated,” says Mr. Zandi, who calls this period the most difficult for American households since the 1930s. “If you don’t have the education and you don’t have the right skills, then you are getting creamed.”

Yes folks this is capitalism at its best working just as it is designed to. Time to rethink this disastrous unstable economic system that brings one recession and depression after another on a regular basis. Can’t argue the facts-capitalism is not stable, just look back at history.Every ten years or so another crash, each being worse than the last.

Kevin2

Gary2

Capitalism works. The 20th century was for the most part brought to us by capitalism. I can’t name any items that propelled mankind into the modern age coming from communism.

The above being said it’s the lack of regulations on capitalism that has caused the problem. Abandoning tariffs and replacing it with “Free Trade” with slave labor nations and de-regulation across the board specifically the demise of Glass-Stegall laid the groundwork for our fall.

I like computers, cutting edge medical procedures, cell phones and the like. I don’t like the financial fox left in charge of the chicken coop.

Americans love it complicated. It is not enough to have the VIX to describe or measure volatility. The VIX, which has no value or substance, can be traded. That is worse than betting on a horse or a dog.

Toomanyfakeconservatives

When the derivatives crisis hits, who do you want at the helm? Cain, Romney, Bachmann, Obama, none of the above?? Given the Balkanization of America, I think we are all going to be at our own helms soon.

jackro

The only way out is the tough way. Give me a nut cracker any day. I would rather go down swinging, than with a whimper.

das monde

They are basically placing bets that potentially no money in the world could pay out. The bailouts is frequently nothing more than 100% compensation of bet winners via obscured stories of helping out (bet loosers).

Or look in this way: with every mortgage “new money” is created, right? During the subprime debacle, Credit Default Swaps (CDS) on subprime bonds were abstractly considered as equivalent to new issues of subprime mortgages – the investor demand for them was that mad. This lead to the infamous synthetic CDO bonds, and perhaps quite a few CDS on them. So here is a hitch: the CDS was indeed equivalent to mortgage bonds, except in chronology. A mortgage contract “crates” new money first, and then come the regular payments. The CDS is an “insurance”: first come regular payments, and then – bah! – a full scale compensation. Where does money come for the compensation?! Some ad hoc bailout action, of course.

Some say that short sellers (for whom CDS is indispensable) add invaluable signals to the market. Well, if we would have more smart “investors” into the subprime bubble collapse, the TARP packages would had beenaccordingly many times larger!

I am watching all of this from South Africa. It is just a question of time before the whole crooked system collapses. We do have our own challenges, but I would not like to trade places with anyone in the USA. However, the coming collapse will affect all of us. At least one who sees what is coming, can take steps to prepare. Personally I think the age of working until retirement and sitting back thereafter has come and gone. So-called “sensible” investment planning has become meaningless. planning to survive the coming storm is more appropriate.
America seems to face many challenges:
-Corporations are outsourcing jobs overseas
because:(i) It is cheaper and (ii) There are
fewer laws and regulations to comply with.
-Without proper jobs the housing market can
never recover.
-The economic system is doomed to fail. Any
person with even a few brain cells can see
that to print money from nothing is just not
sustainable. Propaganda from the MSM can delay
things. However, as they say, you can fool
some of the people some of the time, but not
all of the people all of the time.
-I do not understand how any economist can have
the idea that you will ever be able to repay
your debt, whether personal or government
debt.
-We here drive mostly German or Japanese cars.
American cars do not have a very good
reputation in this part of the world.
Personally I do like your electronic gadgets,
manufactured in China!!!
-Personally, I am also sceptical about doing
business with people selling you
worthless “investments”, like CDS swaps,
derivates and so on. To bundle worthless
mortgages together, give it a AAA grading and
sell it to unsuspecting investors is just not
ethical. This damages your credibility in the
eyes of the world. People that were stung once
will not remain suckers.
-As the sole surviving superpower, everybody
used to be careful of dealing with the US.
After seeing the weaknesses of your forces
exposed in Iraq and Afghanistan, more enemies
may decide to challenge you in the
future.
-If the SHTF, there are enough weapons in
circulation in the US to make surviving there
interesting, to say the least.
Good luck to all the good folks out there.
I do appreciate sites like yours and all the work that goes into compiling the articles.
Thanks.

Syrin

Gary, you are seriously uneducated. Be honest, are you still in high school? Capitalism is not the fault. Capitalism would have NEVER bailed out these guys, they would have failed, and other stronger companie without risky ventures would have stepped in. Gov’t interference is the cause of the ENTIRE problem. The housing bubble was caused by gov’t interference when mandating interest rates stay ARTIFICIAlLY low, and demanded banks give loans to unqualified borrowers or face penalties. NONE of that happens in a free market. We live in a fascist state.

I know you have NO desire to educate yourself. You have “learned” enough from the proapganda our state education system has given you to be dangerous, but you have perhjaps the most closed mind of any who come here. You fail to see the obvious in that this administration has received the most campaign dollars from Wall Street of any in US history. The administration is fuill of appointees right out of Goldman Sachs, yet you say wall Street is the problem. You have no earthly clue what the Federal Reserve is or does, and how intertwined all three are. You don;t WANT to know, after all, you are what Marx called a “useful idiot” there to be loud and do the bidding of those you protest.

“In the world of the protesters, means of production have the same essential status as consumers’ goods, which as a rule are of benefit only to their owners. It is because of this that those who share the mentality of the protesters typically depict capitalists as fat men, whose plates are heaped high with food, while the masses of wage earners must live near starvation. According to this mentality, the redistribution of wealth is a matter merely of taking from the overflowing plates of the capitalists and giving to the starving workers.

Contrary to such beliefs, in the modern world in which we actually live, the wealth of the capitalists is simply not in the form of consumers’ goods to any great extent. Not only is it overwhelmingly in the form of means of production, but those means of production are employed in the production of goods and services that are sold in the market. Totally unlike the conditions of self-sufficient farm families, the physical beneficiaries of the capitalists’ means of production are all the members of the general consuming public who buy the capitalists’ products.”

PERFECTLY states how short sighted, uneducated, and brainwashed the Gary’s of the world are. Like Marx said, useful idiots.

Michael, thanks so much for this informative article. Considering the complex nature of the subject, the article is clear and concise, yet remarkably comprehensive. Your intelligent readers left many excellent comments as well. Bless you, sir, and Godspeed in your efforts to alert American voters to impending catastrophe.

I say there son, you listening to me son?, I say there, let us not throw the rich under the bus. We need them.

I say, save our rich folk, lower their taxes.

tappedops

Holy coladeralized debt obligation Batman… how are we going to get out of this one…

mack

So how does one prepare for the coming repeat crisis, especially if we have money in one of those “too big to fail” banks or Merrill Lynch ? (short of moving money to a credit union. Though doesn’t that just weaken banks further? A run on the banks?)

mack

Maybe the whole damned thing needs to come to a spectacular collapse so we can all learn from scratch what really matters….after the survival of the fittest law cleans house, that is.

For us on the supply side of silver mining that have not been able to raise dollars to actually mine metals needed for solar energy because of silver ETFs — we know all about the dangers of Monopoly Money.
This is why more miners bite a paper dollar, of late and finding it isn’t real, are suggesting their wives take in laundry to pay for other commodities as fuel, and food, to replay loans in real silver dollars.

BlackDog

Best definition of a derivative: You’re at the track. Beezelbub & Bernanke-Bites are walking towards the gate. You bet your buddy which horse poops first. That’s a derivative of who wins the race. Ask Henry Paulson & Lloyd Blankfein what derivatives are.

Fred

I do not see how the events that will soon be upon Europe, Asia, and the United States financial system will save the global economy.
Europe is unable to find a real solution to their financial problems. I just read an interesting article about the Chinese bubble that may soon burst. As for the United States, we all know national debt is going up faster than a speeding bullet. It now stands at a record 14.9 trillion dollars when just two months ago it was 14.3 trillion dollars. Now throw in the derivatives and there can be no doubt that the global ecomomy will collapse.

Lennie Pike

Criticize derivatives at the risk of being labeled a communist or socialist – even after the derivatives explosion. That is if a nuclear one does not take place first.

If you think that’s a little too much, you unfortunately would be incorrect.

Buckle up.

Balmyone

Along with the implosion of all financial assets will be the discovery that there are more gold and silver contracts long than there is gold and silver to satisfy.

Most Derivatives are harmless- options and futures since they expire. But CDO’s and CMO’s are a mix of good and bad debt. Now Europe has the same problem since debts are mixed like scrambled eggs and cant be unscrambled or un broken. Gold anyone?

sharonsj

Derivatives are not harmless. I remember another derivatives blow-up 25 years ago that wiped out whole municipalities and school systems. These people were told (translation: lied to) that derivatives were safe investments and were left in terrible debt which the taxpayers, as usual, had to pay for. I don’t think anyone went to jail back then either.

Bob McLean-Australia

It is simple to overcome this issue, just force the banks into bankruptcy reorganization. This will allow the banks to continue to trade under their charter in a more controlled environment with the reintroduction of the Glass Steagall Act, and the derivative debt is cancelled. Like you or I, if we are bankrupt…all debt is cancelled and we move forward in a limited financial way for a period of time. In this case with the banks, all debts are cancelled but allowed to continue trading providing they operate under the Glass Steagall Act. NO Glass Steagall Act, next election, vote only for the Representative who supports this idea. Simple….ahhh…sorry for my ignorance…forgot…you are dealing with politicians who are easily bought off due to their own illusion of grandeur and self worth. Its time for a few guilty culprits to face jail.

HP

who writes these articles?

JustanOGuy

Here’s an idea… everybody stop paying their mortgage and credit card bills and let the games begin.

Sarah P.

Been saying that since 2008. I hope it catches on. Include taxes also.

You need to STARVE THE BEAST!

jackro

Great article. Only one thing missing. How do we protect ourselves from this monster? Gold, silver, food, ammo, and water are the obvious, but is there something that we can do with our retirement savings(some of us still have 25 years of planning to do) etc?

Paul

I never signed one of these contracts. Did you? It seems that we taxpayers should insist that our Congress critters refuse to backstop or prop up any derivative contract. Let the speculators alone suffer for their actions. They entered that market to ESCAPE THE NORMAL REGULATORY HURDLES REQUIRED IN CONVENTIONAL MARKETS. They should bear sole risk.

PAUL LEO FASO

This is a criminal enterprise of the highest order. There can be only one resolution to the endless looting of our Treasury.

GOOGLE; CLASS ACTION LAWSUIT AGAINST THE FEDERAL RESERVE BANK..OR FOLLOW THE LINK BELOW TO THE PLAN;

Easy solution…have a world finance ministers meeting and declare that all credit derivative products and those participating in them amount to terrorist acts being inflicted upon humanity.

Give a 30 period to disband them to all market participants. Then start smart bombing the holdouts.

Richard

The solution is very kiss! I can solve the problem beyond question! A simple solution? Sincerely, your mentor!!!

Charlie

Sounds like another bailout for the “too big to fails” that we can’t live without!

Ray-UK

I would like to recommend a book that tells you all about “The Quant’s” by Scott Patterson. The maths geniuses who brought down Wall Street, The frightening thing is that the Quants are still at it.The coming Deriviatives crisisis could happen any day soon.

Ladies & gentlemen, boys & girls, this is going to get bad – REALLY BAD! As we speak there is occurring a steady withdrawal by depositors from the “Too Big To Fail Banks”- a silent but deadly run on the banks.The world banking system is on the edge of dangerous precipice that is threatening international equities and bond markets. Investors and savers need to prepare for a financial avalanche by moving their wealth into gold and silver immediately. Please don’t delay as time is of the essence.

The Commodity Futures market is one of the largest derivative trading arenas with many commodities; currencies; precious metals; and energy products listed – .

It all revolves around “Price” and “Time”. You will notice that on all traded contracts there are time periods listed noted by contract months going out up to three-years out.

Whatever the price is today (minute by minute as the contracts are traded) someone can buy or sell a contract with a 1% to 3% of the value of the contract in their account (buying or selling on margin)

Most from the public are psychologically conditioned that they have to buy first and then sell to make a profit. In derivatives that is 100% incorrect. You are making a “time” bet for higher or lower prices. If you think the value is going down, you sell a contract. If you think it is going up you buy a contract.

With the markets now primarily being traded electronically, when a buy or sell order is entered and at your price your fill usually is instant. This means you can jump in and out at your choice. If you choose it could be 10 minutes, an hour, a day, a week, or longer that you hold your position. The following is an example of the best profit in the shortest period I personally made:

It was back in 1981 and on on day when I was watching silver towards the close, it looked like it was very top heavy after moving up a few dollars over a couple of weeks. I said to myself: “I think it is going to collapse in the last few minutes before the close. It was 4-minutes to the close and I at that time having an account balance of about $32,000 slapped in two orders; (SELL) 35 DEC SILVERS at Market, and (BUY) 35 DEC SILVERS (Market on Close)

Well, got filled on the 35 sell orders in about 5 seconds and in the next 4-minutes silver collapsed by 42c where my Market on close orders were filled. No more 35 derivative orders held, just accounting of the instant CASH collected on the trade. Here is the accounting: 42c X 35 = $14.7 X $5,000 ($1 value of a silver contract move) = $73,500 + $32,000 (my account balance before the trade)= $106,500 (account balance after the trade) or not bad after a 4-minute derivatives trade. Now those that had the “other side” of the trade got burnt. The commissions I was paying at that time was about $15 per contract X 35 contracts traded = $525 that went to the House and exchange that “cleared” the trade.

Most commodity contracts have active participation in the front months but the further the time goes out participation dries up and thus no liquidity to trade those contracts.

For every contract being that it is a bet on “time” will reach its expiration and delivery day. When that happens all speculators are out and those wishing to take or make delivery stay in to the last day and then the exchanges match up the “real” buyers and sellers to each other on the outstanding contracts where physical delivery of the underling commodity is made.

Come that last day the volume of contracts held dries up to usually less that 1% of what it was a few days earlier (over 99% were speculators and less than 1% actually wanted to take or make delivery)

So that 600 trillion is the “full contract value” of all contracts being traded. That 1.5 quadrillion is when you take into account both sides of the contract. For every buyer holding a contract there is a seller holding the other side. So when counting each side 600 X 600 = 1.2 quadrillion.

Here is the “Bottom Line”:

With 99% speculators, yes it is a casino. But “who” are the primary players that are liquidating tens of billion of dollars a day from the trading activity (remember when the trade is closed in 5-minutes or 5-months it is all a “cash” accounting for the winner’s and loser’s account balances)

Well, those from the general public that tries to play this game, they get their account balances decimated to the tune of 98% of those player that participated in very short periods of time. (bought on highs; sold on lows; got stopped out or force liquidated for not having the proper margin after being depleted from quick adverse market moves)

So who are that 2% factor that takes everyone’s money to the tune of over a few trillion dollars a year (some times in a month as happened at the end of 2008) ?

The answer may surprise you. Now the House and the Exchanges get a small cut from each side. There are a few magnates on the inside track that also make good money: But the “Primary” profiteer for several decades now are: Institutional Government Fund Management.

They in so many words all subscribe to the same News Services and consulting groups. They have the fund resources in trillion dollar collective totals managed from around the globe. They can act in loose concert and roll the markets up; down; sideways and do so as fast or as slow as they wish.

The end of 2008 showed how fast they could move the markets by exercising their multi-trillion dollar trading accounts and massive contract volume they can move in and out.

At the end of 2008 in a month and a half about 25 to 30 trillion-dollars was “sucked” right out of players accounts globally that were on the wrong sides of the trades. Now some government investment funds where they were on the outside track got burnt. The primary government institutional global accounts that “were” on the inside track made a killing of several trillion dollars.

Now here is the definition of arrogance:

Government (USA) global institutional funds now after having liquidating trillions out of the playing loser’s accounts at the end of 2008, (which caused massive defaults from the loser’s who ended up with severe deficit account balances)now uses a trillion here and a trillion there of taxpayer revenue to shore-up their own casino and friendly corporate interests.

Is there a “bubble” in the derivatives market?

As of 2009, Oh yes.. You can not suck so many trillions out of others accounts at the end of 2008 without destabilizing the playing field. Commodity futures contracts back then were settled after weeding out defaults so back to normal there. I note the definition of normal is those government institutional accounts rolling the market up and down, quick and slow; as they liquidate that 98% factions cash on the trades.

The danger lies in those “Mortgage Interest Rate Swaps” where there is a substantially reduced value of the underling commodity and in some cases the contract instrument traded had no underling commodity to back it up at all(real-estate home and commercial properties)

Here the balancing act is precarious to say the least. Offsetting those contract instruments to balance out with “real” underling value market to market is a nightmare for the players.

Those trillions in bailouts to the global banks and financial institutions have primarily gone to that end.

Are they getting closer to balancing the books? Yes..

Are they there yet? No, they are about 60% there and it will take more time to balance the remainder and the beat goes on..

Thanks for your enlightening explanations on the derivative markets. I had no idea the depth of government involvment in these areas. Therefore I expect if things get really dicey, The Rules will be changed- to benefit the rulers of course! Good luck to you, sir.

Understanding the puzzle of derivativesThe Commodity Futures market is one of the largest derivative trading arenas with many commodities; currencies; precious metals; and energy products listed – Futures Market It all revolves around "Price" and "Time". You will notice that on all traded contracts there are time periods listed noted by contract months going out up to three-years out.Whatever the price is today (minute by minute as the contracts are traded) someone can buy or sell a contract with a 1% to 3% of the value of the contract in their account (buying or selling on margin)Most from the public are psychologically conditioned that they have to buy first and then sell to make a profit. In derivatives that is 100% incorrect. You are making a "time" bet for higher or lower prices. If you think the value is going down, you sell a contract. If you think it is going up you buy a contract. With the markets now primarily being traded electronically, when a buy or sell order is entered and at your price your fill usually is instant. This means you can jump in and out at your choice. If you choose it could be 10 minutes, an hour, a day, a week, or longer that you hold your position. The following is an example of the best profit in the shortest period I personally made:It was back in 1981 and on on day when I was watching silver towards the close, it looked like it was very top heavy after moving up a few dollars over a couple of weeks. I said to myself: "I think it is going to collapse in the last few minutes before the close. It was 4-minutes to the close and I at that time having an account balance of about $32,000 slapped in two orders; (SELL) 35 DEC SILVERS at Market, and (BUY) 35 DEC SILVERS (Market on Close)Well, got filled on the 35 sell orders in about 5 seconds and in the next 4-minutes silver collapsed by 42c where my Market on close orders were filled. No more 35 derivative orders held, just accounting of the instant CASH collected on the trade. Here is the accounting: 42c X 35 = $14.7 X $5,000 ($1 value of a silver contract move) = $73,500 + $32,000 (my account balance before the trade)= $106,500 (account balance after the trade) or not bad after a 4-minute derivatives trade. Now those that had the "other side" of the trade got burnt. The commissions I was paying at that time was about $15 per contract X 35 contracts traded = $525 that went to the House and exchange that "cleared" the trade.Most commodity contracts have active participation in the front months but the further the time goes out participation dries up and thus no liquidity to trade those contracts. For every contract being that it is a bet on "time" will reach its expiration and delivery day. When that happens all speculators are out and those wishing to take or make delivery stay in to the last day and then the exchanges match up the "real" buyers and sellers to each other on the outstanding contracts where physical delivery of the underling commodity is made. Come that last day the volume of contracts held dries up to usually less that 1% of what it was a few days earlier (over 99% were speculators and less than 1% actually wanted to take or make delivery) The 600 trillion notional value is: the value of all the bets.EXAMPLE: a 30 Year Bond on the commodity futures market has a $100,000 face value of the bet and the margin requirement to hold it over night is $2,500 and day trading margin can be $1,000. As of today the "Net" contract volume is at about 289,000 contracts. So based on notional face value that is 289,000 X $100,000 = $89 billion-dollars but the "margin deposits being used is substantially less.So that 600 trillion is the "full contract value" of all contracts being traded. That 1.5 quadrillion is when you take into account both sides of the contract. For every buyer holding a contract there is a seller holding the other side. So when counting each side 600 X 600 = 1.2 quadrillion.Here is the "Bottom Line":With 99% speculators, yes it is a casino. But "who" are the primary players that are liquidating tens of billion of dollars a day from the trading activity (remember when the trade is closed in 5-minutes or 5-months it is all a "cash" accounting for the winner’s and loser’s account balances)Well, those from the general public that tries to play this game, they get their account balances decimated to the tune of 98% of those player that participated in very short periods of time. (bought on highs; sold on lows; got stopped out or force liquidated for not having the proper margin after being depleted from quick adverse market moves) So who are that 2% factor that takes everyone’s money to the tune of over a few trillion dollars a year (some times in a month as happened at the end of 2008) ?The answer may surprise you. Now the House and the Exchanges get a small cut from each side. There are a few magnates on the inside track that also make good money: But the "Primary" profiteer for several decades now are: Institutional Government Fund Management. They in so many words all subscribe to the same News Services and consulting groups. They have the fund resources in trillion dollar collective totals managed from around the globe. They can act in loose concert and roll the markets up; down; sideways and do so as fast or as slow as they wish. The end of 2008 showed how fast they could move the markets by exercising their multi-trillion dollar trading accounts and massive contract volume they can move in and out. At the end of 2008 in a month and a half about 25 to 30 trillion-dollars was "sucked" right out of players accounts globally that were on the wrong sides of the trades. Now some government investment funds where they were on the outside track got burnt. The primary government institutional global accounts that "were" on the inside track made a killing of several trillion dollars.Now here is the definition of arrogance:Government (USA) global institutional funds now after having liquidating trillions out of the playing loser’s accounts at the end of 2008, (which caused massive defaults from the loser’s who ended up with severe deficit account balances)now uses a trillion here and a trillion there of taxpayer revenue to shore-up their own casino and friendly corporate interests.Is there a "bubble" in the derivatives market?As of 2009, Oh yes.. You can not suck so many trillions out of others accounts at the end of 2008 without destabilizing the playing field. Commodity futures contracts back then were settled after weeding out defaults so back to normal there. I note the definition of normal is those government institutional accounts rolling the market up and down, quick and slow; as they liquidate that 98% factions cash on the trades.The danger lies in those "Mortgage Interest Rate Swaps" where there is a substantially reduced value of the underling commodity and in some cases the contract instrument traded had no underling commodity to back it up at all(real-estate home and commercial properties)Here the balancing act is precarious to say the least. Offsetting those contract instruments to balance out with "real" underling value market to market is a nightmare for the players. Those trillions in bailouts to the global banks and financial institutions have primarily gone to that end. Are they getting closer to balancing the books? Yes..Are they there yet? No, they are about 60% there and it will take more time to balance the remainder and the beat goes on..Walter Burien – (CTA) Commodity Trading Advisor) 1978 – 1992 and commodity Futures Trader of 33 years.

What do you figure the odds are of the next crisis coming before the books are balanced enough to bail out the losers again?

READ ROVER

One thing that always seems to be forgotten is that we the people have no standing with the us government! It is a little known fact that since FDR had no authority to confiscate gold under norman law he invoked the “TRADING WITH THE EMEMY ACT” left over from WW1 and thus by declaring US citizens the “ememy” he could impose ccomfiscation on them.The “TRADING WITH THE ENEMY ACT” has never been repealed nor has the declaration of US citizens as “the enemy”. we taxpayers are the enemy of the US and thus our protests are mmeaningless!

Awful and sad but true! We need to rid ourselves of our elected Emperor and his Nobility in congress!

Mark Sivad

The derivatives in my opinion, and others here may or may not be a threat. What is a real threat is the overvalued assets allowed on banks balance sheets, which just prolong the eventual re-evaluation.

wayne

The AIG “derivatives” were actually just mortgage insurance that any one could buy. They were not limited to the entities that made the loans. So all the financial powers and insiders bought insurance (derivatives) on these loans, knowing full well many if not most would defualt and they would collect full value on real estate loans that they had not even made.

This is why Greenspan, Paulson and the others allowed and encouraged ridicuously easy loan quaification and “liars loans” without any income verification. It was the biggest insurance fraud in world history. Would Jewish financiers and other like minded people commit insurance fraud? Is there a fat ass in America?

….Mao Tse Tung wisely pointed out “Political Power Grows Out of the Barrel of a Gun!”

….Similiarly the only way today’s governments will yield to the Public’s Outrage (Democractic process is now a Pathetic Joke) over their collaborative “Corporate Crimes” is if that Public are weilding GUNS and Confronting Them en masse!

Yes, the Great Helmsman also said:
“A revolution is not a dinner party…”

Don

If the derivatives are little more than bets, and the govt. is going to provide the legal system and infrastructure to support the process somewhat akin to a gambling establishment. then a 10% vig should should be charged on both sides of the transaction. A monitor should also be appointed to prevent a house from gambling more than it could afford to lose.

Guest

I’d rather see the old method that was put up to straighten out attorneys (not fool proof, but helped).
I suggest we take ALL the major bank officers, including down through the 2nd and 3rd VP’s for all sections, mix them up in a big stadium, then have them all line up.
Shoot every third one of them and then tell them if anymore shennanigans like “derivative” “investing” will see them all brought together again and every 2nd one will be shot.
Works every time… AFTER you’ve taken the first step to get them all together.

mile

The Derivitive Bank extortion has already paid 850 billion ………………

Munford Coldwater

Can anyone speculate how much writing and negociating 1.4 Quadrillion in these contracts yields in commissions and other assorted fees. Seems to me this represents a huge amount of money sucked out of the system, which is perhaps the true season for the existance of these largely useless contracts.

jon

now you know why were in so much debt! its been an open free for all for the politicans and bankers. not one is in jail because of it. the set up was delibert to rip off and clean out america and much of the world . t o destroy fiat

Mike

So how much of this problem has to do with our fiat currency system and are most people living in denial about an inevitable world economic collapse? Human ingenuity will take us through whatever we got ourselves into. I cannot subscribe to the idea that a failed economy is the end of my hopes and dreams. I believe that a massive shift in how we live and trade commodities will occur in my lifetime and it’s great to be alive during such a rapidly evolving time in world history. Old ideas will be thrown out by necessity. A new way of life will emerge…exciting times people! Good luck and stay safe.

SmokietheBear

‘A new way of life will emerge.’

Hopefully, with a ten-fold reduction in population.

Lovelife

About you comment of a reduced population,Great , you can be the first to go.

ace

lead by example you go frist

steve edward

I hope you are included in the the ten-fold reduction in population

blackjack

OK we all know whats going on
but how to preserve your wealth – is it cash gold silver WHAT?

To quote you “Most people don’t talk much about derivatives because they simply do not understand them”.

I’m afraid your posting uses the notional size of the contracts instead of the actual financial risks which are far smaller. You’ve picked on giant numbers and metaphorically arm waved and spread fear and doubt.

For each derivative contract, you need a ‘notional’ number which is the amount of money to calculate payments on – the actual payments and therefore amount at risk, is derived from those numbers, and comes down to much smaller amounts.

e.g. an interest payment on a $100m interest rate swap, where the difference between the fixed and floating rate could be as low as 0.5% would be $500k, hardly a mind boggling amount. And yes these amounts add up, but not the to vast amounts you’re suggesting. Have a read about the bond market – really big amounts, those are the ones to worry about.

At the moment, the problems with the world economy are driven by over-borrowing, simple stuff. The derivatives in the world are little to do with how some European countries and one north american country have borrowed too much.

Best wishes, Bill

Credulous Dolt

Thank you, thank you, thank you.

Atilla Levay

History seems to be repeating itself again and again since Biblical Times.

The present worldwide financial crisis, like the ones before it, is not an unpredictable, unforeseeable sudden act of Nature, like a Tsunami, Hurricane or Earthquake, and proves yet again that the (Financial) World is run mostly by bulimically greedy, insatiable, cynical, unscrupulous, dishonest, short sighted, but incredibly arrogant and conceited idiots, driven probably by some inferiority complex ridden, insane compulsion to amass more and more unnecessary Riches, Wealth and through that, Power over their fellow humans. Had the highest ranking decision makers of the Financial and Political World adhered to the time honoured proverb of: “cut your coat, according to your cloth” the World, Mankind, and Mother Earth, our one and only sustainer, of Life, and Home would not now be cascading down the slippery slope towards Total Chaos, War, Famine, and Destruction. The concept of “Noblesse Oblige” means nothing to these people and they are incapable of seeing their moral responsibility and understand that we, all of us, are passengers on Planet “Titanic” Earth and in the End will sail, or sink into oblivion together anyway. By now we have got to the Stage, that Economic life, Television, Newspapers, Culture, just about every facet of human life is controlled by these, in reality inferiority complex ridden, Mad Morons. The gap between Rich and Poor is wider than ever before in the History of Mankind, and instead of getting smaller it is increasing day by day. To paraphrase World War II British Prime Minister Winston Churchill: “Never in the Realm of Human History have so many been exploited, taken advantage of, manipulated, smilingly sent to financial ruin, abject poverty, hopeless despair, or even death, by so few.”
The pictures below perhaps offer us the way we should follow to solve this problem.

This is surely why God prohibited interest and gambling. while these people playing around with the non-existing value “assets”, there are people who scrapping ration from the island of garbage disposal. where did all the resources went? wasted as excess on the silver plate after a “big boy’s” meal. Where is the love? to create nuclear, atom shall be separated and exactly by doing that, they separated humanity for this destructive, short term power. lets embrace peace as how Buddha tought us. let the peace get us out from the tribulation as mentioned by Jesus. It may be too late to reverse the time-bomb, but never to late for embracing the love, and seeking the hidden truth.

GERN

NATIONALIZE THE ENTIRE MONETARY SYSTEM..THROW OUT THE MONEY CHANGERS…. ABSOLVE THEIR WEALTH…. PUT THEM ON TRIAL …..INSTALL NEW BANKING SYSTEMS WITH STRICT REGULATIONS …”THE NEW PEOPLES BANK OF AMERICA”

shogun_01

damn, reading news like this makes me sick to my stomach… and its true the worst of it not even mentioned is hypothication of collateral by banks… to an infinite amount.. just look at what banks re-hypothicated… most plegdged over 50% of their collateral!

Keith Bailey

If you allow banks to fail as they should,or any bussines have the first time the market forces would have taken care of it like it used to untill goverment got involved. Human nature will not correct itself without a little pain

This is troubling news.Fortunately I produce some of my food and live near farms where I can barter for what I need. When this happens I would be willing to work for the things that are needed.I have a small machine shop where I can repair or fabricate items for trade.This would be far from an ideal lifestyle,but it might be a way to survive.If everyone barters their goods and services for goods and services that they need the inpact could be lessened.Though it would do my heart good to see these wallstreet/banksters planting and working fields by hand. I hope none of this happens.

Credulous Dolt

Oh. for *****************, stop. Fix the real problems in your life. The chances that you’ll be hunting for dinner with a pointed stick are nil.

Doug Danzeisen

If I understand correctly then derivatives are nothing more than a bet, they are not tangible assets, and they became legal due to the repeal of the Glass-Steagal act? So in reality they generate vast profits out of nothing, as unless the agreed upon event come to pass the fee is total profit. Is that about it?

kenezen

Notional Derivatives (mostly Credit Default Swaps CDS) fit your description. and I really enjoy your site and agree with much of it. A few things.
Listed Derivative tranches were developed in the low to middle eighties. Tranches are genetically altered “Strips” of securities formed to reflect specific investor needs. some were high yield and illiquid some were mundane low yield better credit and liquid. They were formed generally as Interest only strips (IO)or Principal only strips (PO). IO strips generally go higher in value when interest rates go higher. PO strips go higher when when Interest rates go down. They are value bearing. These are derivative strips with value. There were in the 80’s the first really complex modeling done to these strips to protect inherent value in rising and falling interest environment. Econometric models were used to predict cash flows given movement. Today even more sophisticated models are employed and Synthetic trades in multiple markets are placed at the same time to protect or enhance value. Calculitic econometric models that would make Einstein blush are used to coordinate the hedge and asset!
I hope this helps.

ThePhamwaaOfShardu

Yeah, OK, Kenezen; IOW it’s a casino. Bets are made on event outcomes. There is no real asset other than the money flying around, and event the worth of THAT is questionable.

So I buy a house. I get a mortgage. The lender gives me the money and gets payments with interest.

It should all stop there. Trading derivative instruments like they’re pork bellies is pure insanity, born of greed and megalomania.

Stop it. Just stop it.

stevemcfadden

The sure bet is total monetary collapse of pandemic global proportions at some point in the future. There is absolutely no possibility that this will not happen. Pray up…be ready. I’d be shocked if it is not within 5 years. The Rapture of the church could precede this event….hope so. Just so you know…this is just a big guess! That’s all.